MomentumOptions.com Pre-Market Update for 10/3/2022

Bears Push Another Round of Fresh 52-Week Lows

8:00am (EST)

The stock market closed the week on a negative note as Friday’s losses capped another winning week for the bears, their fifth in six weeks. The broader market and the blue-chips pushed fresh 52-week lows after falling out of the bottom of their current trading ranges.

The setup for Tech also worsened after the Nasdaq tagged a fresh monthly low while the small-caps held their own. Volatility actually settled lower despite the market weakness after falling to make a higher intraday high from the previous session.

The Dow tested a late day low of 28,715 while settling at 28,725 (-1.7%). Longer-term and upper support from October 2020 at 28,750-28,500 failed to hold. A drop below the latter would be an ongoing bearish setup with downside risk towards 28,250-28,000.

The S&P 500 closed at 3,585 (-1.5%) after hitting a low of 3,584. November 2020 and upper support at 3,600-3,575 was breached and failed to hold. A close below the latter would suggest additional weakness to 3,550-3,400.

The Nasdaq traded down to 10,572 before ending at 10,575 (-1.5%). Upper support at 10,650-10,500 failed to hold. A move below the latter and the mid-June 52-week low at 10,565 would indicate a further pullback towards 10,400-10,250.

The Russell 2000 finished on the session low of 1,664 (-0.6%). Key support at 1,650 was challenged but easily held. A fade below this level and the 52-week low at 1,641 would signal weakness towards 1,625-1,600. Below is a chart of the IWM. 

Volatility Index

The Volatility Index (VIX) was down for the second time in three sessions despite tagging a high of 33.25. Current and lower resistance at 33-33.50 was cleared but held for the second-straight day. A close above the latter would suggest another retest towards 34-35.

Support is at 30-29.50.

Market Analysis

The Invesco QQQ Trust (QQQ) was down for the second-straight day following the late session slide to $267.10. October 2020 and upper support at $267.50-$267 was breached and failed to hold. A drop below the latter would suggest additional downside action to $265.50-$265.

Resistance is at $274.50-$275.

RSI (relative strength indicator) is in a downtrend after failing to hold key support at 30. Continued closes below this level would indicate weakness towards 25-20 and the lows from March 2020. Resistance is at 35-40.

Sector

The Consumer Discretionary Select Spiders (XLY) extended its losing streak to two-straight sessions with the low at $142.03. Mid-July and upper support at $142.50-$142 failed to hold. A move below the latter would signal additional weakness to $140.50-$140.

Resistance is at $146-$146.50.

RSI remains in a downtrend with key support at 30 holding. A close below this level would indicate weakness to 25-20 and oversold levels from March 2020. Resistance is at 35-40.

Market Outlook

September is historically one of the worst performing months for the market and Wall Street was glad to see it go. However, October is no cakewalk and has been notorious for some of the biggest crashes in the history of the stock market.

The S&P and the Dow fell over 9% last month with the Nasdaq off nearly 6%. More importantly, the major indexes have now fallen for three-straight quarters and are down over 20% for the year.

The declines officially put the stock market back into bear market territory.

Last Thursday, I highlighted key support for the Dow and S&P at 29,000 and 3,600, respectively. The Nasdaq held 10,500 and the Russell held 1,650.

The Dow downside targets on a close below 29,000 are 28,000-27,000 and represent another decline of 3-6% from the current level. The slide below 3,600 for the S&P reopened downside risk to 3,500-3,400, or another 2-5%, lower from last Friday’s close.

If the Nasdaq fails to hold 10,500, there is risk to 10,100-10,000, or 4-5% from the current level. For the Russell, a move below 1,650 might suggest another 8-10% tumble to 1,525-1,500.

One of the reasons that could explain the lower action in the VIX was the call option buying as Wall Street and traders have been buying way out-of-the-money calls into November. For example, the CBOE Volatility Index VIX November 50 calls traded over 4,000 contracts and has open interest above 300k.

There are a number of stocks I have on the watch list, both bullish and bearish. On the bullish side, Western Digital (WDC) and Tyson Foods (TSN) have become way oversold with RSI’s below 20. As for bearish setups, I’m looking at Bristol-Myers Squibb (BMY) and Twitter (TWTR).

Momentum Options Play List

Closed Momentum Options Trades for 2022: 24-16 (60%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records. Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades.

Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Stops” entered to close any trades or “Limit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the Daily‬ updates and Text Alerts.

ProShares Bitcoin Strategy ETF (BITO, $11.99, up $0.03)

BITO October 10.50 puts (BITO221021P00010500, $0.40, unchanged)

Entry Price: $0.51 (9/22/2022)
Exit Target: $1.05
Return: -22% 
Stop Target: None

Action: Lower resistance at $12.25-$12.50 was cleared but held following the trip to $12.45. Support remains at $11.75-$11.50.

Rocket Companies (RKT, $6.32, down $0.15)

RKT December 8 calls (RKT221216C00008000, $0.35, down $0.05)

Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -63% 
Stop Target: None

Action: Mid-June and key support at $6.25 was tripped but held after shares tapped a fresh 52-week low of $6.23. Lowered resistance is at $6.50-$6.75.

Diana Shipping (DSX, $3.61, unchanged)

DSX December 6 calls (DSX221216C00006000, $0.10, unchanged)

Entry Price: $0.40 (8/18/2022)
Exit Target: $1.00
Return: -75% 
Stop Target: None

Action: Friday’s high touched $3.78 with lower resistance at $3.70-$3.80 getting cleared but holding. Shaky support is at $3.50.